Presumptive Tax

[Ethirajan Parthasarathy]

An assessee owns 8 Lorries.

He files tax return offering net income of 7,20,000 (90000*8) under section 44AE of IT Act. He does not maintain books of account.

The assessee is aware that there is accrual to his bank account by about 15 lakhs after withdrawal for lorry mentainance and personal maintenance.

My queries are.

Is the assessee justified in offering only 7,20,000 as taxable Income knowing well that his surplus is really more

Will the department accept the assessee stand that (the source of) his investment of 15 lakhs in FD is out of taxed amount for purpose of section 69 of IT Act 1961.

[Rajendra Prasad]

Dear Mr Ethirajan,

The query is to be divided into two parts.

1. Presumptive Income : Correct.

2. Investment in FD : You have to prepare a cash flow and constructed balance sheet. If you could show the cash flow then there will be no problem. Please note that Depreciation is also can be added to the income and loan payments are to be deducted in the cash flow.

If you prepare cash Flow and Constructed Balance Sheet , you can easily explain the sources.

Do not compare income with cash flows.

If you do not have cash flows better to offer more income than the minimum income required to be offered U/s 44AE.

//Joy is never tomorrow :: It is now // Sri Sri Ravisankar

AI Summary

Presumptive taxation: prepare cash-flow and reconstructed balance sheet to substantiate investments and avoid unexplained investment adjustments. The assessee should prepare a detailed cash flow statement and a constructed balance sheet tracing receipts, withdrawals for maintenance and personal use, loan repayments and sources of funds; depreciation can be added back and loan repayments shown as deductions in the cash-flow analysis to substantiate that bank deposits or investments are explained and not unexplained investments.